High-net-worth individual

From Wikipedia, the free encyclopedia
Not to be confused with Ultra high-net-worth individual.

High-net-worth individual (HNWI) is a term used by some segments of the financial services industry to designate persons whose investible wealth (assets such as stocks and bonds) exceed a given amount. Typically, these individuals are defined as holding financial assets (excluding their primary residence) with a value greater than US$1 million.[1][2]

"Very-HNWI" (VHNWI) can refer to someone with a net worth of at least US$5 million.[1]

The Capgemini World Wealth Report 2020[2] defines an additional class of ultra-high-net-worth individuals (UHNWIs), those with US$30 million in investable assets.

As of June 2020, there were estimated to be just over 13 million HNWIs in the world. The United States had the highest number of HNWIs (4,700,000) of any country, while New York City had the most HNWIs (348,000) among cities.[3]

United States: SEC regulations[]

See also: Accredited investor

The U.S. Securities and Exchange Commission requires all SEC-registered investment advisers to periodically file a report known as Form ADV.[4] Form ADV requires each investment adviser to state how many of their clients are "high-net-worth individuals", among other details; its Glossary of Terms explains that a "high-net-worth individual" is a person who is either a "qualified client" under rule 205-3 of the Advisers Act (currently a person with at least $1,100,000 managed by the reporting investment adviser, or whose net worth the investment adviser reasonably believes exceeds $2,200,000 without counting their primary residence) or who is a "qualified purchaser" as defined in section 2(a)(51)(A) of the Investment Company Act of 1940). The Dodd-Frank Wall Street Reform Act mandated that the definition of a qualified client be reviewed every five years and adjusted for inflation.[5] The net worth of an individual for SEC purposes may include assets held jointly with his or her spouse. Unlike the definitions used in the financial and banking trade, the SEC's definition of HNWI would include the value of a person's verifiable non-financial assets, such as a primary residence or art collection.[6]

Annual World Wealth Report[]

The World Wealth Report was co-published by Merrill Lynch and Capgemini, previously known as Cap Gemini Ernst & Young who worked together since c. 1993, investigating the "needs of high-net-worth individuals" to "successfully serve this market segment". Their first annual World Wealth Report was published in 1996.[7]

The World Wealth Report defines HNWIs as those who hold at least US$1 million in assets excluding primary residence and ultra-HNWIs as those who hold at least US$30 million in assets excluding primary residence.[8] The report states that in 2008 there were 8.6 million HNWIs worldwide, a decline of 14.9% from 2007. The total HNWI wealth worldwide totaled US$32.8 trillion, a 19.5% decrease from 2007. The ultra-HNWIs experienced the greater loss, losing 24.6% in population size and 23.9% in accumulated wealth. The report revised its 2007 projections that HNWI financial wealth would reach US$59.1 trillion by 2012 and revised this downward to a 2013 HNWI wealth valued at $48.5 trillion advancing at an annual rate of 8.1%.[9]

The 2018 World Wealth Report [10] was jointly produced by Capgemini and RBC Wealth Management and included, for the first time, the Global HNW Insights Survey produced in collaboration with Scorpio Partnership.[11] The inaugural survey represented one of the largest and most in-depth surveys of high-net-worth individuals ever conducted, surveying more than 4,400 HNWIs across 21 major wealth markets in North America, Latin America, Europe, Asia-Pacific, Middle East, and Africa.

HNWI wealth distribution (by region)[10]
Region HNWI population HNWI wealth
Global 20.8 million $80 trillion
Asia-Pacific 6.9 million $24 trillion
North America 7 million $24.3 trillion
Europe 5.4 million $17.5 trillion
Middle East 0.8 million $3.2 trillion
Latin America 0.6 million $9 trillion
Africa 0.2 million $1.8 trillion

The World Wealth Report has estimated the number and combined investable wealth of high-net-worth individuals as follows (using the United States Consumer Price Index (CPI) Inflation Calculator):[12]

World Wealth Report Findings 1996-2019
Year Number of HNWIs

(millions)

HNWI wealth

(trillions USD)

In Jan 1996 USD

(trillions USD)

1996[13] 4.5 16.6 16.6
1997[13] 5.2 19.1 18.54
1998[13] 5.9 21.6 20.6
1999[13] 7.0 25.5 24.0
2000[13] 7.2 27.0 24.7
2001[13] 7.1 26.2 23.1
2002[13] 7.3 26.7 23.3
2003[13] 7.7 28.5 24.2
2004[13] 8.2 30.7 25.6
2005[13] 8.7 33.3 27.0
2006[14] 9.5 37.2 29.0
2007[15] 10.1 40.7 31.1
2008[15] 8.6 32.8 24.0
2009[15] 10.0 39.0 28.5
2010[15] 10.9 42.7 30.4
2011[16] 11.0 42.0 29.5
2012[2] 12.0 46.2 31.5
2013[2] 13.7 52.6 35.3
2014[2] 14.7 56.4 37.2
2015[2] 15.4 58.7 38.8
2016[2] 16.5 63.5 41.4
2017[2] 18.1 70.2 44.6
2018[2] 18.0 68.1 42.4
2019[2] 19.6 74.0 45.4

Markets[]

Certain products cater to the wealthy, whose conspicuous consumption of luxury goods and services includes, for example: mansions, yachts, first-class airline tickets and private jets, and personal umbrella insurance.[17] As economic growth has made historically expensive items affordable for the middle-class, purchases have trended towards intangible products such as education.[17] In the United States, concierge medicine is an emerging trend as of 2017.[18]

Banking and finance[]

Main articles: Private banking and Wealth management

Most global banks, such as Santander, Barclays, BNP Paribas, Citibank, Credit Suisse, Deutsche Bank, HSBC, JPMorgan Chase, and UBS, have a separate business unit with designated teams consisting of client advisors and product specialists exclusively for UHNWI. These clients are often considered to have characteristics similar to institutional investors because the vast majority of their net worth and current income is derived from passive sources, rather than labor.

By 2006, asset managers working for HNW individuals invested more than £300 billion on behalf of their clients. These wealth managers are bankers who in 2006, earned multimillion-pound salaries and owned their own companies and equity funds.[19] In 2006, a list of the 50 top investment bankers was published by the Spear's Wealth Management Survey.

Magazines[]

Certain magazines, such as Monocle,[20] Robb Report,[21] and Worth, are designed for a high net worth audience.

Retail[]

Brands in various sectors, such as Bentley, Maybach, and Rolls-Royce actively target UHNWI and HNWI to sell their products. In 2006, Rolls-Royce researchers suggested there were 80,000 people in ultra-high-net-worth category around the world. UHNW individuals "have, on average, eight cars and three or four homes. Three-quarters own a jet aircraft and most have a yacht."[22]

Number of HNWIs per city[]

The following is a list of the cities with the most HNWIs as of December 2018 as per the 2019 World Ultra Wealth Report published by Wealth-X.[23]

Rank City Number of
HNWIs
(2018)
1 United States New York City 978,810
2 Japan Tokyo 593,025
3 United States Los Angeles 576,255
4 Hong Kong Hong Kong 391,595
5 United Kingdom London 372,270
6 United States Chicago 353,775
7 France Paris 345,175
8 United States San Francisco 314,055
9 United States Washington, DC 301,495
10 United States Dallas 298,220

Number of UHNWIs per city[]

Knight Frank Wealth Report 2019[]

Rank City Number of
UHNWIs
(2018)[24]
1 United Kingdom London 4,944
2 Singapore Singapore 3,598
3 Japan Tokyo 3,732
4 United States New York City 3,378
5 China Beijing 1,673
6 France Paris 1,667
7 South Korea Seoul 1,594
8 Taiwan Taipei 1,519
9 Switzerland Zurich 1,507
10 China Shanghai 1,263

Wealth-X Report 2020[]

Rank City Number of
UHNWs
(2019)[25]
1 United States New York City 10,435
2 Hong Kong Hong Kong 9,950
3 Japan Tokyo 7,800
4 United States Los Angeles 6,150
5 France Paris 4,670
6 United Kingdom London 4,535
7 United States Chicago 3,890
8 United States San Francisco 3,410
9 United States Washington, DC 3,230
10 United States Dallas 3,165

Migration of HNWIs by Country[]

The following table shows the countries with the highest net inflow of HNWIs in 2018 and 2017 according to an annual report conducted by AfrAsia Bank in partnership with New World Wealth. The report excludes the war-torn countries of Syria, Libya and Iraq because data from those countries is unreliable.[26]

Rank Country Number of Inflow
HNWIs
(2018)		 Number of Inflow
HNWIs
(2017)
1  Australia 12,000 10,000
2  United States 10,000 9,000
3  Canada 4,000 5,000
4  Switzerland 3,000 2,000
5  United Arab Emirates 2,000 5,000
 Caribbean* 2,000 3,000
6  New Zealand 1,000 1,000
 Singapore 1,000 1,000
 Israel 1,000 2,000
 Portugal 1,000 -
 Greece 1,000 -
 Spain 1,000 -
7  Monaco 100+ -
 Malta 100+ -
 Mauritius 100+ -
 Latvia 100+ -
 Hong Kong 100+ -

Caribbean includes Bermuda, Cayman Islands, Virgin Islands, St. Barts, Antigua, St Kitts & Nevis, etc.
Notes: Figures rounded to nearest 1000.
Source: AfrAsia Bank - Global Wealth Migration Review 2018 & 2019

The following table shows the countries with the highest net outflow of HNWIs in 2017.

Rank Country Number of Outflow
HNWIs
(2018)		 Number of Outflow
HNWIs
(2017)
1  China 15,000 10,000
2  Russia 7,000 3,000
3  India 5,000 7,000
4  Turkey 4,000 6,000
5  France 3,000 4,000
 United Kingdom 3,000 4,000
6  Brazil 2,000 2,000
7  Saudi Arabia 1,000 1,000
 Indonesia 1,000 2,000
8  Nigeria 100+ 1,000
 Venezuela 100+ 1,000
 Ukraine 100+ -
 Egypt 100+ -
 Lebanon 100+ -
 Iran 100+ -

Notes: Figures rounded to nearest 1000.
Source: AfrAsia Bank - Global Wealth Migration Review 2018 & 2019

Academic studies of asset management trends[]

The Wharton Global Family Alliance (WGFA) whitepaper was released in 2008 to study the investment strategies of single family offices in the United States and in Europe.[27] The research was segregated into sub-groups representing those with less than $1 billion in assets and those with assets above $1 billion. The study found that U.S. families reported a more aggressive attitude toward investment objectives than their counterparts in Europe. One recommendation of the WGFA study advised the advisors and family offices serving this niche to avoid complexity in the structure of portfolios.

The authors of the cite that the more complex the portfolio and number of holdings, the more difficult the job of performing adequate governance, reporting, and education. The Institute for Private Investors, a peer networking organization for wealthy families and their advisors, suggested a similar theme to its membership in 2008 with a conference themed, "The Return to Simplicity".[28] Kotak Wealth Management[29] and CRISIL Research, published a report on the Ultra High Net Worth Individuals in India titled "Top of the Pyramid Report".[30]

Niall J Gannon and Michael Blum published a whitepaper in The Journal of Wealth Management[31] in 2006 titled The After-Tax Return of Stocks Versus Bonds for the High Tax Bracket Investor. The paper found that the return of indexed stock portfolios fell from 10.62% for non-taxable portfolios to 6.72% for a portfolio that paid the highest federal income and capital gains tax rate. The paper observed rolling 20 year periods from 1961–2006. The study was updated by Gannon and Scott Seibert, CFA in Tailored Wealth Management: Exploring the Cause and Effect of Financial Success.[32] This study began at the inception of the S&P 500 Index in 1957 through year end 2018 and calculated the after-tax return to be 7.36%.[32]

See also[]

References[]

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  2. ^ a b c d e f g h i j "World Wealth Report 2020" (PDF). Capgemini. Archived (PDF) from the original on 2020-11-10. Retrieved 2020-11-09.
  3. ^ "Global Wealth Migration Review 2020". AfrAsia Bank. AfrAsia Bank Limited. 2020. Archived from the original on 2020-11-10. Retrieved October 2, 2020.
  4. ^ "SEC.gov - Form ADV". www.sec.gov.
  5. ^ "Order Approving Adjustment for Inflation of the Dollar Amount Tests in Rule 205-3 Under the Investment Advisers Act" (PDF). SEC.gov / Securities and Exchange Commission. Retrieved 2021-10-12.
  6. ^ "17 CFR § 230.501 - Definitions and terms used in Regulation D." LII / Legal Information Institute. Retrieved 2020-11-10.
  7. ^ 2003 World Wealth Report (PDF) (Report). Capgemini. 2003. Archived from the original (PDF) on January 2, 2010. Retrieved 10 September 2013.
  8. ^ 2009 World Wealth Report (Report). Thought Leadership. Capgemini. 2009.
  9. ^ 2009 World Wealth Report (PDF) (Report). Capgemini. 2009. Retrieved 11 September 2013.
  10. ^ a b "World Wealth Report".
  11. ^ "The Scorpio Partnership". Archived from the original on 2001-04-17.
  12. ^ "Consumer Price Index (CPI) Inflation Calculator". U.S. Bureau of Labor Statistics.
  13. ^ a b c d e f g h i j 2006 World Wealth Report (PDF) (Report). Capgemini. 2006. Archived from the original (PDF) on January 2, 2010. Retrieved 11 September 2013.
  14. ^ "World Wealth Report 2007" (PDF). Capgemini. 2020-11-10. Archived (PDF) from the original on 2020-11-10. Retrieved 2020-11-10.
  15. ^ a b c d 2011 World Wealth Report (PDF) (Report). Capgemini. 2011. Archived from the original (PDF) on 3 November 2011. Retrieved 11 September 2013.
  16. ^ "The 16th Annual World Wealth Report" (PDF). Capgemini. 2020-11-10. Archived (PDF) from the original on 2020-11-10. Retrieved 2020-11-10.
  17. ^ a b Currid-Halkett, Elizabeth. "Conspicuous consumption is over. It's all about intangibles now". Aeon Ideaslanguage=en. Retrieved 2018-12-24.
  18. ^ Schwartz, Nelson D. (2017-06-03). "The Doctor Is In. Co-Pay? $40,000". The New York Times (in American English). ISSN 0362-4331. Retrieved 2018-12-24.
  19. ^ Rivkin, Annabel (12 December 2006). "How I make the rich richer". The Times. London. Retrieved 10 September 2013.
  20. ^ Neate, Rupert (November 11, 2017). "Wealth: Monocle: you've seen the magazine – now buy the apartment". The Guardian (in British English). ISSN 0261-3077. Retrieved 2018-12-24.
  21. ^ Post Staff Report (December 8, 2014). "Magazines for the mega-rich". New York Post. Retrieved 2018-12-24.
  22. ^ Ray Hutton (5 November 2006). "Rich spurn ultra-luxury cars". UK: The Sunday Times. Retrieved 10 September 2013.
  23. ^ "New York City is home to nearly 1 million millionaires, more than any other city in the world". www.cnbc.com.
  24. ^ "Map: Cities With the Most Ultra-Rich Residents". www.visualcapitalist.com. 8 March 2019.
  25. ^ "Ranked: The Top 10 Global Cities, by Ultra-Wealthy Population". www.visualcapitalist.com.
  26. ^ "AfrAsia Bank Global Wealth Migration Review". ISSUU. April 2019. Archived from the original on 2019-12-27. Retrieved 2019-12-27.
  27. ^ Wharton Global Family Alliance. "Benchmarking the Single Family Office: Identifying the Performance Drivers".
  28. ^ Institute for Private Investors. [1].
  29. ^ "Welcome to Kotak Wealth Management". Archived from the original on 2009-11-14.
  30. ^ "Ultra HNI segment set to treble: Report". Indian Express. 2011-06-07. Retrieved 2020-03-27.
  31. ^ Gannon, Niall J.; Blum, Michael J. (2006). "After-Tax Returns on Stocks Versus Bonds for the High Tax Bracket Investor". The Journal of Wealth Management. 9 (2): 35–45. doi:10.3905/jwm.2006.644217. S2CID 154017452.
  32. ^ a b Gannon, Niall J. (21 January 2019). Tailored Wealth Management - Exploring the Cause and Effect of Financial Success - Niall J. Gannon. Palgrave Macmillan. ISBN 978-3-319-99779-7. Retrieved 2020-03-27."

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